Madras High Court stays single-Judge ruling on GST exemption for RWA contributions "upto ₹ 7,500"

A Division Bench of the Madras High Court has stayed a single-judge ruling which had held that only contributions by Resident Welfare Association (RWA) members in excess of ₹ 7,500 per member per month are liable to be taxed under the Goods and Services Tax (GST) Act. (Union of India v. M/S.TVH Lumbini Square Owners Association).A Bench of Justices TS Sivagnanam and Sathi Kumar Sukumara Kurup admitted and issued notice on an appeal challenging the single-Judge order passed by Justice Anita Sumanth in the matter last July. .The Court said that there is a legal issue that needs to be decided since the single-judge had also quashed the circular issued by the Revenue Department in the matter, "which needs verification".."Since the circular has wider ramification, that portion of the order passed in the writ petitions, shall remain stayed until further orders," the Division Bench further ordered. .After the introduction of the GST Act in 2017, the exemptions granted from GST were outlined in a notification issued by the Centre on June 28, 2017. By this notification, an exemption was granted to contributions made to RWAs upto an amount of ₹ 7,500 per month per member of housing complexes or residential complexes..Since the contributions made to the RWA on some occasions exceeded ₹7,500, a question arose as to whether the resident in that RWA would lose his entitlement to the exemption altogether if he contributed an amount in excess of ₹ 7,500 per month. .Therefore, the Authority for Advance Rulings (AAR) was approached to clear the air, which led to an adverse ruling being passed in 2019 against the RWAs..In July, this year, Justice Anita Sumanth ruled in favour of various RWAs, to hold that,."The conclusion of the AAR as well as the Circular to the effect that any contribution above Rs.7,500 would disentitle the RWA to exemption, is contrary to the express language of the Entry in question and both stand quashed. To clarify, it is only contributions to RWA in excess of Rs.7,500 that would be taxable under GST Act.".In the appeal moved before the Division Bench of the High Court, the Central government raised the following points:The entire transaction value is what is being subjected to GST and this amount cannot be bifurcated. If the RWA member contribution exceeds Rs 7,500, the entire amount contributed would be subject to tax; The word ‘upto’ can be interpreted in two ways. It could either mean exemption is granted only when the transaction value is less than Rs.7,500 or exemption is granted only for Rs.7,500 when the transaction value is more than 7,500; In 2012, an exemption was given for contributions upto Rs 5,000 per month per member with respect to "sourcing of goods or services from a third person for the common use of its members." In 2014, it was clarified that if the contribution per member exceeds Rs 5,000, the entire contribution of such members would be ineligible for exemption; The exemption is intended for middle class and not for the owners of luxury apartments..Therefore, no exemption is applicable when the monthly contribution exceeds ₹7,500, the Centre told the Court. .The Court admitted the appeal on September 9 and posted the matter for further hearing on December 9, 2021. .Senior Standing Counsel R Hemalatha appeared for the appellant-authorities. .[Read orders]